Parent's Retirement Plan - Need Advice

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FamilyGuy87
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Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

Hi Bogleheads!

I am a long-time follower of your forum and philosophy. I would love to get your advice on my parent’s recent retirement and their portfolio. They recently retired at the end of 2020. They live in Texas (LCOL City). Here is their financial standing:


Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: Fed depends on distribution; State 0%
State of Residence: TX
Age: 58 and 63
Desired Asset Allocation: Still figuring it out….

Total Portfolio Size: $1.75MM

Cash/Cash Equivalent
About $500,000 between Savings and CDs (It is currently at a local FCU but I am trying to get them to switch to Ally for a higher yield)

Taxable
Fidelity Actively Managed Account: $152,000 (0.8% ER)
I believe the AA here is 60/40...but varies since it’s actively managed.

IRA
Fidelity Actively Managed Account: $1,100,000 (0.8% ER)
I believe the AA here is 60/40...but varies since it’s actively managed.

House (I did not include this as part of the Total Portfolio Size)
Fully owned. Valued at about $380,000


Other Relevant Factors:

Social Security
My Dad can get anywhere from $2000 to $3000 a month depending on when he starts.
My Mom would use her spousal benefits...so about half of my dad’s is my understanding.

Expenses
They are estimating about $80,000 of expenses (after paying Fed taxes). This is their first full year from retirement so this number is still being refined.
A large portion of this estimate is healthcare cost ($15K) which should go down when Medicare starts.
The other large portion is Property Taxes ($8K). This should also be reduced once Dad turns 65.
Edit 1 This number might be a bit conservative and does include some travel.

Expected Lifespan
My Mom’s family genes favor longer living. So for planning purposes, we are looking at 90 as an age.
My Dad’s family genes are not as favorable so we are planning for 80 as an age.

Objective
Set up their finances to take on the least amount of risk while having enough money in their portfolio to last their whole life.
Both of their children are financially doing well and do not expect/need any inheritances.


Questions:
  1. Should they get this annuity? They recently had a sit down with Chase JPM they offered a Variable Annuity that seems interesting:
    $350,000 in Brighthouse FlexChoice Variable Annuity.
    7% Surrender Fee that slowly goes to 0% over 7 years.
    If my Dad waits until the age of 65 to withdraw it will pay 6% of the balance for the rest of both of their lives.
    This annuity also seems appealing because my Mom emotionally cannot stand market volatility. She is very prone to converting all their
    securities to cash during financial distress. Although I am not a big fan of annuities, it seems that this might provide a stable income and would prevent interferences due to emotional impulses.
  2. Should they keep the Fidelity Actively Managed product? Or convert to a Target Retirement Fund with a lower ER?
  3. How many years of expenses should they keep in cash/cash equivalents? About 2 years?
  4. Should they see a (EDIT 2 fee-based) fee-only Financial/Retirement Advisor? Where to find one? How much does it typically cost?
I look forward to hearing your input and advice. I will also be sending the post link to my parents so that they can monitor your responses.

Regards,

FamilyGuy

EDIT 3 Jump to Summary Below: viewtopic.php?f=1&t=347478&p=5977945#p5977945
Last edited by FamilyGuy87 on Fri Apr 30, 2021 9:00 am, edited 4 times in total.
HomeStretch
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Re: Parent's Retirement Plan - Need Advice

Post by HomeStretch »

For the Fidelity actively managed account - does the 0.8% ER include both the AUM fee and the average fund ER? Is the advisor portfolio overly complicated? Do your parents need/want to continue with an advisor? Or do they want to simplify to say a 3-fund portfolio and self-manage?

Two years of cash is reasonable in my opinion. You will get a differing opinions on this. It will boil down to holding whatever amount allows your parents to sleep well at night.

Have your parents considered using some of their cash to buy I-Bonds? The rate on 5/1 will be > 3%. Another option is a MYGA (look for a great thread by Stinky about MYGAs).

Not enough experience to comment on the Brightside variable annuity proposal other than they may want to wait until they are a bit older and interest rates increase.

Your parents’ annual expenses including taxes is likely ~$95k. Delaying social security for the high earner to increase the SS benefit with COLA may make sense. Opensocialsecurity.com can help your parents with their social security claiming strategy.

Even though they want the least risk, they may need to hold at least 50% equity in early retirement to insure their portfolio lasts through retirement. Perhaps try running their numbers through FireCalc.
Last edited by HomeStretch on Thu Apr 29, 2021 8:33 am, edited 1 time in total.
Jack FFR1846
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Re: Parent's Retirement Plan - Need Advice

Post by Jack FFR1846 »

A variable annuity is going to be wrought with fees and charges. It also ties up your parents' money for at least 7 years. How does that help them?

A better plan, since your mom is not behaviorally good with managing money is to buy a SPIA (single premium immediate annuity). This, in essence takes their lump sum and gives them a monthly income. They don't have to manage anything. These are sold like commodities and are easy to shop for.

I have to ask.....living in a low cost area with a paid for house, what on earth are they spending $80k on? I live in a high cost area (Boston) and don't spend nearly that much. My property taxes are about the same as theirs ($8k), I am supporting 4 cars and my 2 20's kids are still living with us.
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Topic Author
FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

HomeStretch wrote: Thu Apr 29, 2021 8:23 am For the Fidelity actively managed account - does the 0.8% ER include both the AUM fee and the average fund ER? Is the advisor portfolio overly complicated? Do your parents need/want to continue with an advisor? Or do they want to simplify to say a 3-fund portfolio and self-manage?
Not sure if the 0.8% ER includes both or just AUM. That is a good question. I will try to find out. In general, they are shying away from self-manage due to behavioral reasons mentioned. I can see a TargetRetirement fund being as close to that as they are willing to do.
HomeStretch wrote: Thu Apr 29, 2021 8:23 am
Have your parents considered using some of their cash to buy I-Bonds? The rate on 5/1 will be > 3%. Another option is a MYGA (look for a great thread by Stinky about MYGAs).
I will look into MYGA
HomeStretch wrote: Thu Apr 29, 2021 8:23 am Opensocialsecurity.com can help your parents with their social security claiming strategy.
I got them looking at I-ORP and different social security calculators including the one you have suggested.
Topic Author
FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

Jack FFR1846 wrote: Thu Apr 29, 2021 8:25 am A variable annuity is going to be wrought with fees and charges. It also ties up your parents' money for at least 7 years. How does that help them?

A better plan, since your mom is not behaviorally good with managing money is to buy a SPIA (single premium immediate annuity). This, in essence takes their lump sum and gives them a monthly income. They don't have to manage anything. These are sold like commodities and are easy to shop for.

I have to ask.....living in a low cost area with a paid for house, what on earth are they spending $80k on? I live in a high cost area (Boston) and don't spend nearly that much. My property taxes are about the same as theirs ($8k), I am supporting 4 cars and my 2 20's kids are still living with us.
I will look into SPIA. (This is why I love this forum. It is nice to have options thrown at you that you have never considered)

I think $80K is still a number they are refining. They should know a lot better by the end of this year. Besides medical and property taxes, this also includes some vacation money also.
HomeStretch
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Re: Parent's Retirement Plan - Need Advice

Post by HomeStretch »

FamilyGuy87 wrote: Thu Apr 29, 2021 8:35 am
HomeStretch wrote: Thu Apr 29, 2021 8:23 am
Have your parents considered using some of their cash to buy I-Bonds? The rate on 5/1 will be > 3%. Another option is a MYGA (look for a great thread by Stinky about MYGAs).
I will look into MYGA
Link to the MYGA thread I mentioned:
viewtopic.php?f=1&t=334589

Another recent thread about MYGA v. CD that may be helpful:
viewtopic.php?f=1&t=347074
Topic Author
FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

Thanks for those links. I am glad you mentioned I-Bonds as something to consider also. Will have to add that to our pot of options to consider for their cash.
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Watty
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Re: Parent's Retirement Plan - Need Advice

Post by Watty »

They really need to avoid the "financial advisors" that are trying to sell them annuities. They are just salespeople that will sell then bad products just to make a large commission from them.

If they feel that they need to have someone to manage their money then they can have Vanguard do it for only 0.3% and they will not put them into bad investments.
Jack FFR1846 wrote: Thu Apr 29, 2021 8:25 am I have to ask.....living in a low cost area with a paid for house, what on earth are they spending $80k on?
There expenses do sound high but it might include some things like travel. The thing to watch out for is that that there expenses will be different in different phases of retirement and by the time they reach their mid 70s they may slow down and and then not spend as much on things like travel


FamilyGuy87 wrote: Thu Apr 29, 2021 8:07 am Expected Lifespan
My Mom’s family genes favor longer living. So for planning purposes, we are looking at 90 as an age.
My Dad’s family genes are not as favorable so we are planning for 80 as an age.
Unless they have a family history of a specific genetic disease then their family history is not a real major factor in determining their life expectancy. This is because many things are more treatable now than they were a generation or two ago. For example many types of cancer are a lot more treatable now than they were even 20 years ago, much less 50 years ago. Also with the knowledge of a family history of some illness they may watch for it and find it much earlier when it is more treatable.
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Re: Parent's Retirement Plan - Need Advice

Post by Jack FFR1846 »

Sorry to harp on this, but perhaps they should write down everything they're spending money on. I'm older than both your parents and plan to retire at the end of the year. I've budgeted my retirement spending based on INCREASED spending over what we currently spend. In Boston, this totals about $67,000. Included is $5k for travel, $2k for offroading (in my Jeep), $5k for restaurants along with the normal taxes, insurance and car/energy costs. I suppose if they plan to take a European or Australian vacation for a month, that would push the number up quite a bit.
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JoeRetire
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Re: Parent's Retirement Plan - Need Advice

Post by JoeRetire »

FamilyGuy87 wrote: Thu Apr 29, 2021 8:07 am Social Security
My Dad can get anywhere from $2000 to $3000 a month depending on when he starts.
My Mom would use her spousal benefits...so about half of my dad’s is my understanding.
Have them check out https://opensocialsecurity.com/ before deciding their claiming stratgegy.
Questions:
  1. Should they get this annuity? They recently had a sit down with Chase JPM they offered a Variable Annuity that seems interesting:
    $350,000 in Brighthouse FlexChoice Variable Annuity.
    7% Surrender Fee that slowly goes to 0% over 7 years.
    If my Dad waits until the age of 65 to withdraw it will pay 6% of the balance for the rest of both of their lives.
    This annuity also seems appealing because my Mom emotionally cannot stand market volatility. She is very prone to converting all their
    securities to cash during financial distress. Although I am not a big fan of annuities, it seems that this might provide a stable income and would prevent interferences due to emotional impulses.
Annuities can be an expensive way to control bad impulses. But in some cases, it's a necessary expense.
[*]How many years of expenses should they keep in cash/cash equivalents? About 2 years?
That makes sense.
[*]Should they see a fee-based Financial/Retirement Advisor? Where to find one? How much does it typically cost?
[/list]
A few hours with a fee-only (not fee-based) fiduciary might help.
Try here: https://www.letsmakeaplan.org
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
delamer
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Re: Parent's Retirement Plan - Need Advice

Post by delamer »

Create a spreadsheet that shows for each of the next 15 years what their expenses will be and what sources of income will cover those expenses. Include what the balance will be their portfolio at the end of each year (assume no real increase — as opposed to nominal — in its value).

For instance, over the next several years all of their expenses will have to be covered by drawing down their portfolio. Then when your father turns 70 (or so), his Social Security will cover a portion of the expenses and there will be less reliance on the portfolio.

Doing this will give them the best view of what they have and where it’s going. Their total portfolio in 7 years, based on $80,000 (plus income taxes) expenses and your father claiming Social Security at 70, will be down to $1.1 million (conservatively assuming no real growth).

That is not a problem for them, in terms of being able to pay their bills, but it will be an eye-opener. (And also unlikely that there will be no portfolio growth.)

And as long as they can afford their lifestyle, why should you or anyone else care how high their expenses are?

Finally, it is useful to have them consider what the survivor’s income and expenses will be once the first of them dies. Usually both go down, but not often expenses don’t decline as much as income.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
delamer
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Re: Parent's Retirement Plan - Need Advice

Post by delamer »

Jack FFR1846 wrote: Thu Apr 29, 2021 9:11 am Sorry to harp on this, but perhaps they should write down everything they're spending money on. I'm older than both your parents and plan to retire at the end of the year. I've budgeted my retirement spending based on INCREASED spending over what we currently spend. In Boston, this totals about $67,000. Included is $5k for travel, $2k for offroading (in my Jeep), $5k for restaurants along with the normal taxes, insurance and car/energy costs. I suppose if they plan to take a European or Australian vacation for a month, that would push the number up quite a bit.
While I agree that it is important to have an accurate take on your expenses in retirement, only the OP’s parents get to decide how to spend their money.

My husband’s and my retirement budget is significantly higher than yours, with different priorities. Do you think we should spend less, even though our income/assets can support it?
Last edited by delamer on Thu Apr 29, 2021 9:27 am, edited 1 time in total.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

Jack FFR1846 wrote: Thu Apr 29, 2021 9:11 am Sorry to harp on this, but perhaps they should write down everything they're spending money on. I'm older than both your parents and plan to retire at the end of the year. I've budgeted my retirement spending based on INCREASED spending over what we currently spend. In Boston, this totals about $67,000. Included is $5k for travel, $2k for offroading (in my Jeep), $5k for restaurants along with the normal taxes, insurance and car/energy costs. I suppose if they plan to take a European or Australian vacation for a month, that would push the number up quite a bit.
I agree, the first time I heard that number it seemed high for me also.
delamer wrote: Thu Apr 29, 2021 9:20 am Create a spreadsheet that shows for each of the next 15 years what their expenses will be and what sources of income will cover those expenses. Include what the balance will be their portfolio at the end of each year (assume no real increase — as opposed to nominal — in its value).
My dad has already started to put this together. He is also using I-ORP to help out with some of the planning on income and distributions.
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Re: Parent's Retirement Plan - Need Advice

Post by delamer »

FamilyGuy87 wrote: Thu Apr 29, 2021 9:27 am
Jack FFR1846 wrote: Thu Apr 29, 2021 9:11 am Sorry to harp on this, but perhaps they should write down everything they're spending money on. I'm older than both your parents and plan to retire at the end of the year. I've budgeted my retirement spending based on INCREASED spending over what we currently spend. In Boston, this totals about $67,000. Included is $5k for travel, $2k for offroading (in my Jeep), $5k for restaurants along with the normal taxes, insurance and car/energy costs. I suppose if they plan to take a European or Australian vacation for a month, that would push the number up quite a bit.
I agree, the first time I heard that number it seemed high for me also.
delamer wrote: Thu Apr 29, 2021 9:20 am Create a spreadsheet that shows for each of the next 15 years what their expenses will be and what sources of income will cover those expenses. Include what the balance will be their portfolio at the end of each year (assume no real increase — as opposed to nominal — in its value).
My dad has already started to put this together. He is also using I-ORP to help out with some of the planning on income and distributions.
I-ORP was helpful to me too.
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Re: Parent's Retirement Plan - Need Advice

Post by RickBoglehead »

We're retiring this year, so I have to ask the OP this question - Have your parents asked for your help / insights? I can tell you that we've not asked our children for help :wink:
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

JoeRetire wrote: Thu Apr 29, 2021 9:16 am A few hours with a fee-only (not fee-based) fiduciary might help.
Try here: https://www.letsmakeaplan.org
Thanks for the terminology correction. So far I have these websites to help me find one:
--->https://www.napfa.org
--->https://www.letsmakeaplan.org

Am I looking at about $1000 for a plan/advice?
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

RickBoglehead wrote: Thu Apr 29, 2021 9:29 am We're retiring this year, so I have to ask the OP this question - Have your parents asked for your help / insights? I can tell you that we've not asked our children for help :wink:
Haha great question. Yes, they did approach me looking for recommendations. It does not mean that what I say is what they will do. They are not as well versed in different financial options and instruments and want to explore what is out there.

That is why I sent them the link to the forum so that they can monitor the discussions and chime in if they choose to.
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Re: Parent's Retirement Plan - Need Advice

Post by rich126 »

Jack FFR1846 wrote: Thu Apr 29, 2021 9:11 am Sorry to harp on this, but perhaps they should write down everything they're spending money on. I'm older than both your parents and plan to retire at the end of the year. I've budgeted my retirement spending based on INCREASED spending over what we currently spend. In Boston, this totals about $67,000. Included is $5k for travel, $2k for offroading (in my Jeep), $5k for restaurants along with the normal taxes, insurance and car/energy costs. I suppose if they plan to take a European or Australian vacation for a month, that would push the number up quite a bit.
When I was first reading the OP I was thinking $1.75M, LCOL, no debt and around 60s, retirement should be a breeze then I saw 80K and that just seems awfully high even with travel.

Seems like it should be no more than 50K.
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Re: Parent's Retirement Plan - Need Advice

Post by retired@50 »

rich126 wrote: Thu Apr 29, 2021 9:56 am
Jack FFR1846 wrote: Thu Apr 29, 2021 9:11 am Sorry to harp on this, but perhaps they should write down everything they're spending money on. I'm older than both your parents and plan to retire at the end of the year. I've budgeted my retirement spending based on INCREASED spending over what we currently spend. In Boston, this totals about $67,000. Included is $5k for travel, $2k for offroading (in my Jeep), $5k for restaurants along with the normal taxes, insurance and car/energy costs. I suppose if they plan to take a European or Australian vacation for a month, that would push the number up quite a bit.
When I was first reading the OP I was thinking $1.75M, LCOL, no debt and around 60s, retirement should be a breeze then I saw 80K and that just seems awfully high even with travel.

Seems like it should be no more than 50K.
+1
4% of $1,750,000 is $70,000.

Starting off at $10,000 over budget at their ages (58 & 63) seems a little risky to me. One way to save some of the annual budget would be to eliminate the fees of the managed accounts.

Regards,
This is one person's opinion. Nothing more.
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Re: Parent's Retirement Plan - Need Advice

Post by 59Gibson »

retired@50 wrote: Thu Apr 29, 2021 10:04 am
rich126 wrote: Thu Apr 29, 2021 9:56 am
Jack FFR1846 wrote: Thu Apr 29, 2021 9:11 am Sorry to harp on this, but perhaps they should write down everything they're spending money on. I'm older than both your parents and plan to retire at the end of the year. I've budgeted my retirement spending based on INCREASED spending over what we currently spend. In Boston, this totals about $67,000. Included is $5k for travel, $2k for offroading (in my Jeep), $5k for restaurants along with the normal taxes, insurance and car/energy costs. I suppose if they plan to take a European or Australian vacation for a month, that would push the number up quite a bit.
When I was first reading the OP I was thinking $1.75M, LCOL, no debt and around 60s, retirement should be a breeze then I saw 80K and that just seems awfully high even with travel.

Seems like it should be no more than 50K.
+1
4% of $1,750,000 is $70,000.

Starting off at $10,000 over budget at their ages (58 & 63) seems a little risky to me.

Regards,
I think folks here are forgetting SS of $24-36k/yr coming. Even assuming 80k/yr expenses currently, but it sounds like it will go down in a few yrs) they'll only need to net about 50k from the portfolio/SPIA
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

I see that there are a lot of posts regarding the annual expense. I will make sure to note that. I understand that is probably one of the biggest levers that my parents can vary to affect their retirement success. So I will make sure that they sharpen that number more OR accept the risks associated with higher expense.
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Re: Parent's Retirement Plan - Need Advice

Post by retired@50 »

FamilyGuy87 wrote: Thu Apr 29, 2021 10:23 am I see that there are a lot of posts regarding the annual expense. I will make sure to note that. I understand that is probably one of the biggest levers that my parents can vary to affect their retirement success. So I will make sure that they sharpen that number more OR accept the risks associated with higher expense.
Noted.
Since I didn't see any hard numbers on the management fees, I'll offer this.
With two accounts being managed they've got $1,252,000 with an ER of .80%

That works out to the following:
1,252,000 X .008 (decimal equivalent of .80%) = $10,016 per year.

That works out to 12.52% of their annual $80,000 budget.

If you can keep them from panic selling in a downturn, there is a huge opportunity to cut this annual cost.

Regards,
This is one person's opinion. Nothing more.
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Re: Parent's Retirement Plan - Need Advice

Post by Stinky »

The Chase advisor had an ulterior motive in suggesting a variable annuity. If they put $350k into that annuity, the advisor will earn about $20k.

Further, your parents will be locked in for 7 years of surrender charges. Plus, they will be paying annuity fees plus excess charges on mutual funds of 2-3% per year, for as long in they are in the annuity.

I would strongly, strongly advise against the variable annuity.

If they desire stability, there are far better choices in the annuity space. I’ve posted frequently about multi year guaranteed annuities (MYGAs), and there are links to those threads above. Or, for guaranteed income for the rest of their life, consider a single premium immediate annuity (SPIA). Both of those are transparent and excellent annuity options.

Post back if you have questions.
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

retired@50 wrote: Thu Apr 29, 2021 10:35 am
FamilyGuy87 wrote: Thu Apr 29, 2021 10:23 am I see that there are a lot of posts regarding the annual expense. I will make sure to note that. I understand that is probably one of the biggest levers that my parents can vary to affect their retirement success. So I will make sure that they sharpen that number more OR accept the risks associated with higher expense.
Noted.
Since I didn't see any hard numbers on the management fees, I'll offer this.
With two accounts being managed they've got $1,252,000 with an ER of .80%

That works out to the following:
1,252,000 X .008 (decimal equivalent of .80%) = $10,016 per year.

That works out to 12.52% of their annual $80,000 budget.

If you can keep them from panic selling in a downturn, there is a huge opportunity to cut this annual cost.

Regards,
Do you recommend something like Vanguard Target Retirement 2020 or 2025 fund?

VTWNX/VTTVX @ 0.13 ER?

I don't think recommending a 3 fund portfolio where they have to actively maintain an AA is a good first step in transitioning.
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

Stinky wrote: Thu Apr 29, 2021 10:37 am The Chase advisor had an ulterior motive in suggesting a variable annuity. If they put $350k into that annuity, the advisor will earn about $20k.

Further, your parents will be locked in for 7 years of surrender charges. Plus, they will be paying annuity fees plus excess charges on mutual funds of 2-3% per year, for as long in they are in the annuity.

I would strongly, strongly advise against the variable annuity.

If they desire stability, there are far better choices in the annuity space. I’ve posted frequently about multi year guaranteed annuities (MYGAs), and there are links to those threads above. Or, for guaranteed income for the rest of their life, consider a single premium immediate annuity (SPIA). Both of those are transparent and excellent annuity options.

Post back if you have questions.
I already had a dislike for Variable Annuities going into this post (Boggleheads helped me figure this out years ago). I am excited to read more about MYGAs and SPIAs.

What is a good place to shop for SPIA?

I saw that your post had some recommendations for MYGAs
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Re: Parent's Retirement Plan - Need Advice

Post by retired@50 »

FamilyGuy87 wrote: Thu Apr 29, 2021 10:42 am
retired@50 wrote: Thu Apr 29, 2021 10:35 am
FamilyGuy87 wrote: Thu Apr 29, 2021 10:23 am I see that there are a lot of posts regarding the annual expense. I will make sure to note that. I understand that is probably one of the biggest levers that my parents can vary to affect their retirement success. So I will make sure that they sharpen that number more OR accept the risks associated with higher expense.
Noted.
Since I didn't see any hard numbers on the management fees, I'll offer this.
With two accounts being managed they've got $1,252,000 with an ER of .80%

That works out to the following:
1,252,000 X .008 (decimal equivalent of .80%) = $10,016 per year.

That works out to 12.52% of their annual $80,000 budget.

If you can keep them from panic selling in a downturn, there is a huge opportunity to cut this annual cost.

Regards,
Do you recommend something like Vanguard Target Retirement 2020 or 2025 fund?

VTWNX/VTTVX @ 0.13 ER?

I don't think recommending a 3 fund portfolio where they have to actively maintain an AA is a good first step in transitioning.
Yes. I would recommend an all-in-one solution.

For investors who aren't interested in any sort of portfolio management tasks of any kind, a target date retirement fund or a Vanguard LifeStrategy fund is an excellent low-cost solution. The entire portfolio is just one huge bucket that they can dip into as needed (within reason). No re-balancing and no worries about style drift due to active management.

The one difference is that target date funds (at least at Vanguard) do change their asset allocation over time, ending up with around 30% stock / 70% bond at 7 years beyond the published retirement "year". So, in 2032, the 2025 fund will contain that 30/70 mix. If that's seen as too conservative, then you might want to stick with a LifeStrategy or Balanced Index fund that uses a constant mixture like 50/50 or 40/60 or something.

Regards,
This is one person's opinion. Nothing more.
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Stinky
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Re: Parent's Retirement Plan - Need Advice

Post by Stinky »

FamilyGuy87 wrote: Thu Apr 29, 2021 10:47 am I already had a dislike for Variable Annuities going into this post (Boggleheads helped me figure this out years ago). I am excited to read more about MYGAs and SPIAs.

What is a good place to shop for SPIA?

I saw that your post had some recommendations for MYGAs
I have never purchased a SPIA. However, I have gotten online quotes from immediateannuities.com and Blueprint Income.

I have purchased several MYGAs from Blueprint, and one each from Gainbridge and Canvas.
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

retired@50 wrote: Thu Apr 29, 2021 11:00 am The one difference is that target date funds (at least at Vanguard) do change their asset allocation over time, ending up with around 30% stock / 70% bond at 7 years beyond the published retirement "year". So, in 2032, the 2025 fund will contain that 30/70 mix. If that's seen as too conservative, then you might want to stick with a LifeStrategy or Balanced Index fund that uses a constant mixture like 50/50 or 40/60 or something.
Thanks for that point. I did not think about those nuances. In either case, it is significantly cheaper than what they have right now.

Also in general, I just spoke with my Dad and he is appreciative of all the responses here. He might send me some additional questions to ask later.
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

Stinky wrote: Thu Apr 29, 2021 11:05 am I have never purchased a SPIA. However, I have gotten online quotes from immediateannuities.com and Blueprint Income.

I have purchased several MYGAs from Blueprint, and one each from Gainbridge and Canvas.
Thanks for those. If anyone else has any additional places to look into please feel free to post.

I am not as familiar with any of those posted. Is there a reputable website that ranks or shows the default risk for these types of securities and their providers? I understand that in Texas you are only protected up to $250K against default risk.
TravelforFun
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Re: Parent's Retirement Plan - Need Advice

Post by TravelforFun »

Jack FFR1846 wrote: Thu Apr 29, 2021 8:25 am A better plan, since your mom is not behaviorally good with managing money is to buy a SPIA (single premium immediate annuity). This, in essence takes their lump sum and gives them a monthly income. They don't have to manage anything. These are sold like commodities and are easy to shop for.
It's not a good time to buy an SPIA when interest rate is low like now. I bought an SPIA in 2019 and wanted to buy another one in 2020 but the monthly annuity payment is 10% less than the 2019 payment for the same premium so I didn't buy. This year's interest rate remains low.

TravelforFun
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Re: Parent's Retirement Plan - Need Advice

Post by FoolMeOnce »

Looking at immediateannuities.com, inputting $350k gives these options (I put 63 y/o male and 58 y/o female. Not sure if it is the other way around. Switching gives a slight increase to the Life payout).

Life: $1,283/month, $15,396/yr. That's 4.4% of original value per year for life. The variable annutity is 6% (of adjusting balance?) but does not start for 7 years, so starts $107,772 in the hole. Looking just at 6% of the initial $350k, that would take just over 19 years to break even. They will be 89 and 84. Of course, I imagine it is 6% of the balance, not of the initial $350k, so they could close the gap sooner (but it could also take longer! especially if the payments reduce the balance, which I imagine is what happens. I'm not very familiar with these, but does 6% market returns mean their payments stay flat (minus fees), and they only increase to the extent the whatever their annuity is invested in performs better than 6%?), and they give up liquidity for seven years up front. And this ignores various fees that might apply.

10 Year Period Certain: $3,133/month, $37,596/year. This gives them payments for 10 years (and to beneficiaries up to 10 years, in the event of death) and no more. The total payout is $375,950, so about 7.5% total growth over seven years. I have never seen this recommended on Bogleheads and cannot give an opinion myself, but it would be a conservative yet stable bridge to social security. But I think it would all be taxed as income. They can probably get something close to this (~1% CDs) to bridge to social security. I think the tax on CDs would just be on the interest, so less tax than 10-year Certain. Not a great choice, but simply getting their money steadily returned to them as income could help avoid panic selling.

If I add 7 years to their ages to simulate the age they would start getting the variable annuity payments (so they would shop for a SPIA at that point), I see:

Life: $1,482/month, $18,000/yr. That's 5.1% return, but they would not have given over their $350k for seven years prior to starting. It may have grown and can be used for a greater annuity. We can't know what the SPIA rates will be seven years in the future, but with safe returns so low right now, I would think it is more likely that the payout could be greater than lesser starting in seven years.
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Re: Parent's Retirement Plan - Need Advice

Post by Stinky »

FamilyGuy87 wrote: Thu Apr 29, 2021 11:13 am
Stinky wrote: Thu Apr 29, 2021 11:05 am I have never purchased a SPIA. However, I have gotten online quotes from immediateannuities.com and Blueprint Income.

I have purchased several MYGAs from Blueprint, and one each from Gainbridge and Canvas.
Thanks for those. If anyone else has any additional places to look into please feel free to post.

I am not as familiar with any of those posted. Is there a reputable website that ranks or shows the default risk for these types of securities and their providers? I understand that in Texas you are only protected up to $250K against default risk.
I believe that both the Immediate Annuities and Blueprint sites show AM Best ratings for immediate annuities. Both sites seem to limit quotes to companies rated A- and higher by AM Best.

Blueprint also shows ratings for companies issuing MYGAs. In general, the companies offering the higher credited rates have the lower ratings. The companies standing behind Gainbridge and Canvas both have B++ ratings.
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Re: Parent's Retirement Plan - Need Advice

Post by livesoft »

I didn't read all the responses. If these were my parents, then I would tell them to save the 0.8% and just invest in a Freedom Freedom Index fund as FFEDX of FQIFX. I have money in both these funds. They could use them for every one of their accounts.

I would encourage them to keep no money at all in cash. They could rely on me to lend them money if they had a major expense.

I would also tell them: Avoiding the 0.8% fee is like getting a free 0.8% interest on all their invested money. It's tough to get that interest rate anywhere. And it's guaranteed!
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Re: Parent's Retirement Plan - Need Advice

Post by BarbK »

FamilyGuy87 wrote: Thu Apr 29, 2021 10:23 am I see that there are a lot of posts regarding the annual expense. I will make sure to note that. I understand that is probably one of the biggest levers that my parents can vary to affect their retirement success. So I will make sure that they sharpen that number more OR accept the risks associated with higher expense.
RE: the $80K, Once you take off $15K for Health Insurance and $8K for property taxes, they are only spending $57K. That doesn't sound extravagant to me at all. Before I was on medicare, our HI was $16K and our expenses were always > $70K.

Once your dad is on Medicare, they should save $5K from a premium reduction.

I don't know how much property tax is reduced based on age, (it isn't where I live) but at least it shouldn't go up.
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

TravelforFun wrote: Thu Apr 29, 2021 11:30 am It's not a good time to buy an SPIA when interest rate is low like now. I bought an SPIA in 2019 and wanted to buy another one in 2020 but the monthly annuity payment is 10% less than the 2019 payment for the same premium so I didn't buy. This year's interest rate remains low.
That is a good point to keep in mind. I don't think they are in a hurry to get something. So if they can wait, it might be worth it.
Stinky wrote: Thu Apr 29, 2021 12:37 pm I believe that both the Immediate Annuities and Blueprint sites show AM Best ratings for immediate annuities. Both sites seem to limit quotes to companies rated A- and higher by AM Best.

Blueprint also shows ratings for companies issuing MYGAs. In general, the companies offering the higher credited rates have the lower ratings. The companies standing behind Gainbridge and Canvas both have B++ ratings.
Thanks for that extra bit of information. That is helpful.
livesoft wrote: Thu Apr 29, 2021 12:47 pm I didn't read all the responses. If these were my parents, then I would tell them to save the 0.8% and just invest in a Freedom Freedom Index fund as FFEDX of FQIFX. I have money in both these funds. They could use them for every one of their accounts.

I would encourage them to keep no money at all in cash. They could rely on me to lend them money if they had a major expense.

I would also tell them: Avoiding the 0.8% fee is like getting a free 0.8% interest on all their invested money. It's tough to get that interest rate anywhere. And it's guaranteed!
I am not as familiar with the Freedom Index Funds. But they seem very similar to Vanguard's TargetRetirement. They have significantly lower ER than what my parents currently hold.
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

BarbK wrote: Thu Apr 29, 2021 1:00 pm
FamilyGuy87 wrote: Thu Apr 29, 2021 10:23 am I see that there are a lot of posts regarding the annual expense. I will make sure to note that. I understand that is probably one of the biggest levers that my parents can vary to affect their retirement success. So I will make sure that they sharpen that number more OR accept the risks associated with higher expense.
RE: the $80K, Once you take off $15K for Health Insurance and $8K for property taxes, they are only spending $57K. That doesn't sound extravagant to me at all. Before I was on medicare, our HI was $16K and our expenses were always > $70K.

Once your dad is on Medicare, they should save $5K from a premium reduction.

I don't know how much property tax is reduced based on age, (it isn't where I live) but at least it shouldn't go up.
I don't know as much about medicare, but it seems like they should be able to save money on that front. With the current administration, it might even happen earlier.

I think they save about $1000 $3000 a year on property taxes after hitting 65.
Last edited by FamilyGuy87 on Thu Apr 29, 2021 1:53 pm, edited 1 time in total.
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Re: Parent's Retirement Plan - Need Advice

Post by JoeRetire »

FamilyGuy87 wrote: Thu Apr 29, 2021 9:30 am
JoeRetire wrote: Thu Apr 29, 2021 9:16 am A few hours with a fee-only (not fee-based) fiduciary might help.
Try here: https://www.letsmakeaplan.org
Thanks for the terminology correction. So far I have these websites to help me find one:
--->https://www.napfa.org
--->https://www.letsmakeaplan.org

Am I looking at about $1000 for a plan/advice?
It could easily be less.
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Re: Parent's Retirement Plan - Need Advice

Post by deserat »

JoeRetire wrote: Thu Apr 29, 2021 1:48 pm
FamilyGuy87 wrote: Thu Apr 29, 2021 9:30 am
JoeRetire wrote: Thu Apr 29, 2021 9:16 am A few hours with a fee-only (not fee-based) fiduciary might help.
Try here: https://www.letsmakeaplan.org
Thanks for the terminology correction. So far I have these websites to help me find one:
--->https://www.napfa.org
--->https://www.letsmakeaplan.org

Am I looking at about $1000 for a plan/advice?
It could easily be less.
Planvision with Mark Zoril is $200 for a year. They can run different scenarios based on your inputs and also make recommendations. I was happy with them-I recently used them for a last outside review before pulling plug. I had run many models ( Firecalc, i-orp, vpw, rpm, etc) myself, but wanted a disinterested opinion. They are fee only.

They were also recently a Boglehead presenter for several chapters.
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

deserat wrote: Thu Apr 29, 2021 2:16 pm Planvision with Mark Zoril is $200 for a year. They can run different scenarios based on your inputs and also make recommendations. I was happy with them-I recently used them for a last outside review before pulling plug. I had run many models ( Firecalc, i-orp, vpw, rpm, etc) myself, but wanted a disinterested opinion. They are fee only.

They were also recently a Boglehead presenter for several chapters.
That seems like an affordable $ number for an outside opinion. Thanks!
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

Before I proceed with a follow-up question, I would like to thank everyone for your inputs. This discussion has been very educational and my dad has already decided to start implementing changes based upon some of the ideas.

Summary of Answers/Ideas:
  • Should they get this annuity?
    • Based upon the discussion it seems like the variable annuity is inadvisable even to control panic selling.
    • Instead, we are going to consider SPIA or MYGA. Due to the low-interest-rate environment, we will research but might wait to purchase one until later.
    • Helpful MYGA Links/Info
      viewtopic.php?f=1&t=334589
      viewtopic.php?f=1&t=347074
      Purchase Options: Blueprint, Gainbridge, and Canvas
    • Helpful SPIA Links/Info
      Purchase Options: https://www.immediateannuities.com/ and Blueprint Income
  • Should they keep the Fidelity Actively Managed product?

    Based upon the questions from here, we realized that the total ER is higher than 0.8%. My parents are also burdened by the underlying fund ER. So the total ER is about %1.2 :x

    So my dad has decided to transition away from Fidelity Wealth Management to either Fidelity Freedom Funds or Vanguard Target Retirement/LifeStrategy Fund. This will be about 1% savings in ER!!! Since they also manage his taxable account, we will have to crunch some numbers on potential capital gains taxes.
  • How many years of expenses should they keep in cash/cash equivalents?

    About 2 seems to be the right answer.
    We will also slowly start putting this money into I-Bonds. We are thinking of just doing $20K a year (Dad + Mom) and not the extra with tax returns.
    I have a follow-up question on this topic below
  • Should they see a fee-only Financial/Retirement Advisor?
    Helpful Links/Info
    https://www.napfa.org
    https://www.letsmakeaplan.org
    https://planvisionmn.com/
  • Tools To Consider
    Opensocialsecurity.com
    I-ORP
    FireCalc
    https://ssa.tools/ <--Not mentioned here but we have used ourselves.

    Other Items to Consider
    Take another look at Expenses
    Be cautious on using historic family life expectancy as a predictor of the future due to advances in medicine and lifestyle differences.


    Hopefully, the summary above will be helpful for anyone new coming to this thread or searching for similar advice in the future. Here is my one follow-up question.

    Follow Up Question

    We got a pretty good idea of what we can do with the IRA/Taxable investments. (SPIA, TargetRetirement...etc)
    We are struggling a bit with the Cash/Cash Equivalents Portion. Here is what we were thinking.
    • Put $20K into I-Bonds
    • Put $180K in Ally
    • What should we do with the remainder ~ $300K?
      They are conservative and do not want this to be part of the Taxable Investments.
      • Put into Ally
      • Put into a CD...which does not seem to be much better than Ally these days
      • Bond Ladder...except they are not very well versed in purchasing individual bonds and would like to avoid this option
      • Short Term Gov Bond Fund???
      • MYGA
      • Anything else to consider? The theme is that they want this money to be lower risk than Equity/Corporate Bonds.
Thanks again for all your help!
Last edited by FamilyGuy87 on Fri Apr 30, 2021 10:25 am, edited 1 time in total.
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retired@50
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Re: Parent's Retirement Plan - Need Advice

Post by retired@50 »

FamilyGuy87 wrote: Fri Apr 30, 2021 8:34 am ...
[*] What should we do with the remainder ~ $300K?
...
Thanks again for all your help!
At the moment, there isn't much anyone can offer that will be a satisfying answer. The current interest rate environment is hard on conservative savers.

One option with a little bit of risk is the Vanguard Ultra Short Term Bond Fund (VUSFX). It will likely be one of the first funds to react to future interest rate increases since it has a short duration.
https://investor.vanguard.com/mutual-fu ... view/vusfx

Otherwise, I suppose it's Ally.

Regards,
This is one person's opinion. Nothing more.
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

retired@50 wrote: Fri Apr 30, 2021 10:22 am At the moment, there isn't much anyone can offer that will be a satisfying answer. The current interest rate environment is hard on conservative savers.

One option with a little bit of risk is the Vanguard Ultra Short Term Bond Fund (VUSFX). It will likely be one of the first funds to react to future interest rate increases since it has a short duration.
https://investor.vanguard.com/mutual-fu ... view/vusfx

Otherwise, I suppose it's Ally.
I was afraid that was going to be the answer
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Re: Parent's Retirement Plan - Need Advice

Post by mptfan »

Did your parents ask for your advice?
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FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

mptfan wrote: Fri Apr 30, 2021 2:27 pm Did your parents ask for your advice?
Haha great question. Yes, they did approach me looking for recommendations. It does not mean that what I say is what they will do. They are not as well versed in different financial options and instruments and want to explore what is out there.

That is why I sent them the link to the forum so that they can monitor the discussions and chime in if they choose to.
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Re: Parent's Retirement Plan - Need Advice

Post by HomeStretch »

The best Ally CD rate I see right now is 0.55% for various terms (which might get increased by .05% if it’s a renewal).
Ally savings and money market account rates are 0.5%.

Marcus is offering a promotional rate of 0.65% for 9 months through 5/31/21. Marcus has a 0.5% savings account rate and you (and the referrer) can get a 0.2% referral bump to 0.7% for 3 months. AARP members can get another 0.1% added for 24 months to the savings account rate.
mptfan
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Re: Parent's Retirement Plan - Need Advice

Post by mptfan »

FamilyGuy87 wrote: Fri Apr 30, 2021 2:44 pm
mptfan wrote: Fri Apr 30, 2021 2:27 pm Did your parents ask for your advice?
Haha great question. Yes, they did approach me looking for recommendations.
Ok, good. You would be surprised how many times people come here to ask for financial advice for others and ways to get someone else to "see the light" when the other person did not ask for the advice.
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Re: Parent's Retirement Plan - Need Advice

Post by trueblueky »

FamilyGuy87 wrote: Thu Apr 29, 2021 8:07 am Hi Bogleheads!

I am a long-time follower of your forum and philosophy. I would love to get your advice on my parent’s recent retirement and their portfolio. They recently retired at the end of 2020. They live in Texas (LCOL City). Here is their financial standing:


Debt: None
Tax Filing Status: Married Filing Jointly
Tax Rate: Fed depends on distribution; State 0%
State of Residence: TX
Age: 58 and 63
Desired Asset Allocation: Still figuring it out….

Total Portfolio Size: $1.75MM

Cash/Cash Equivalent
About $500,000 between Savings and CDs (It is currently at a local FCU but I am trying to get them to switch to Ally for a higher yield)

Taxable
Fidelity Actively Managed Account: $152,000 (0.8% ER)
I believe the AA here is 60/40...but varies since it’s actively managed.

IRA
Fidelity Actively Managed Account: $1,100,000 (0.8% ER)
I believe the AA here is 60/40...but varies since it’s actively managed.

House (I did not include this as part of the Total Portfolio Size)
Fully owned. Valued at about $380,000


Other Relevant Factors:

Social Security
My Dad can get anywhere from $2000 to $3000 a month depending on when he starts.
My Mom would use her spousal benefits...so about half of my dad’s is my understanding.
$36,000 to $54,000 in combined Social Security. About 40-60% of their needed income of about $90,000 before tax.

They have plenty if they simply spend down taxable until his age 70, then rely on SS and RMD. That's not the most tax efficient.
Expenses
They are estimating about $80,000 of expenses (after paying Fed taxes). This is their first full year from retirement so this number is still being refined.
A large portion of this estimate is healthcare cost ($15K) which should go down when Medicare starts.
The other large portion is Property Taxes ($8K). This should also be reduced once Dad turns 65.
Need to know how much this goes down.
Edit 1 This number might be a bit conservative and does include some travel.

Expected Lifespan
My Mom’s family genes favor longer living. So for planning purposes, we are looking at 90 as an age.
My Dad’s family genes are not as favorable so we are planning for 80 as an age.
Better figure 95/90 or longer.
Objective
Set up their finances to take on the least amount of risk while having enough money in their portfolio to last their whole life.
Both of their children are financially doing well and do not expect/need any inheritances.


Questions:
  1. Should they get this annuity?
No.
They recently had a sit down with Chase JPM they offered a Variable Annuity that seems interesting:
$350,000 in Brighthouse FlexChoice Variable Annuity.
7% Surrender Fee that slowly goes to 0% over 7 years.
If my Dad waits until the age of 65 to withdraw it will pay 6% of the balance for the rest of both of their lives.
This annuity also seems appealing because my Mom emotionally cannot stand market volatility. She is very prone to converting all their
securities to cash during financial distress. Although I am not a big fan of annuities, it seems that this might provide a stable income and would prevent interferences due to emotional impulses.

[*]Should they keep the Fidelity Actively Managed product? Or convert to a Target Retirement Fund with a lower ER?
Target date or balanced (50/50 perhaps)

[*]How many years of expenses should they keep in cash/cash equivalents? About 2 years?
I think more than two years to counter the rush to cash in a downturn.
[*]Should they see a (EDIT 2 fee-based) fee-only Financial/Retirement Advisor? Where to find one? How much does it typically cost?
[/list]
You have a free-based advisory team here.

I look forward to hearing your input and advice. I will also be sending the post link to my parents so that they can monitor your responses.

Regards,

FamilyGuy

EDIT 3 Jump to Summary Below: viewtopic.php?f=1&t=347478&p=5977945#p5977945
Topic Author
FamilyGuy87
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Re: Parent's Retirement Plan - Need Advice

Post by FamilyGuy87 »

trueblueky wrote: Fri Apr 30, 2021 3:59 pm You have a free-based advisory team here.
I do agree. This forum has been amazing for my own personal finances and now for my parents also.
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